Tommy Armour's out of Ch. 11, but it faces challenging course

A week ago, Toronto-based Gen-X Sports Inc., a closely held firm known as a marketer of snowboards and scooters, grabbed the assets of Morton Grove's Teardrop Golf Co. out of Bankruptcy Court for $15.5 million and changed the company's name back to Tommy Armour.

The brainchild of New Jersey entrepreneur Rudy A. Slucker, Teardrop made a splash in late 1997 with the twin acquisitions of Tommy Armour and Ram Golf Co., both based in suburban Chicago. But the company was chronically undercapitalized and filed for Chapter 11 protection in December.

In addition to the name change, Gen-X has installed fresh management and promised sorely needed marketing support. But the damage runs deep: Teardrop never turned a profit in three years and left behind a trail of unpaid creditors. In the face of an industrywide slump in golf club sales and tough competition from much larger manufacturers such as Callaway Golf Co. in Carlsbad, Calif., Tommy Armour's rescue is far from assured.

"Gen-X is the wrong company to turn around this brand," says Casey Alexander, a golf analyst at Gilford Securities Inc. in New York. "It would have been better if an established golf company like Wilson (Sporting Goods Co.) in Chicago had acquired the old Teardrop and folded its manufacturing into its own operations. Gen-X has no experience in the golf industry and no established sales organization."

When Mr. Slucker spent almost $30 million to acquire Ram and Armour in 1997  the two had lost an aggregate of $35 million the previous year  he reasoned that by combining several club makers, he could gain scale in both manufacturing and marketing. Within two years, he had reduced losses to $4 million, but a critical secondary stock offering in 1999 was canceled for lack of investor interest. Advertising was slashed, and with no marketing support, sales ground nearly to a halt.

Says Mr. Slucker: "If we could have raised $20 million in a secondary offering, we would have made it."

In the first nine months of last year, Teardrop's revenues plummeted 42% to $30.3 million, while the loss widened to $2.1 million, or 80 cents a share, compared with $832,000, or 37 cents a share, in the year-earlier period.

At the time of the Dec. 4 bankruptcy filing, Teardrop had liabilities of $30.8 million. In the assets sale, only secured lenders will get repaid; former shareholders will get nothing, Teardrop attorneys said.

John Collins, president of Gen-X, vows to keep the Tommy Armour headquarters in Morton Grove and begin investing in marketing again. But he concedes that he doesn't have the budget for television or player endorsements.

"These are brands with great heritage and tradition but they're underdeveloped right now," Mr. Collins says. "We're confident we can get sales moving again."

There are plenty of hazards ahead, however.

Sales of golf irons in the U.S. last year totaled $475 million at wholesale, down 11% from the peak in 1997 of $533 million, according to Golf Data Tech Inc., a Florida research firm.

"The growth hasn't been there, which is why we've seen a number of club makers get into trouble recently," says Jay Hubbard, director of marketing for Tour Edge Golf Manufacturing Inc. in St. Charles.